There is still no clarity on the rules of Goods and Service Tax (GST) that’s applicable on solar plants and the issue has divided the industry as well as the two state appellate who ruled differently to the individual plea of the appellants. Two different decisions were received from the Karnataka and Maharashtra Advance Ruling Authorities which was to levy GST rate at 5% and 18% respectively.

The Karnataka Appellate Authority for Advance Ruling (AAAR) was of the opinion that supply of photovoltaic modules is a unique transaction and cannot be naturally bundled with the supply of other components and parts of a solar plant. Until now, there has been no clear definition of solar power generating system under the GST regime, but there have been similar scenarios under the previous excise law where similar exemptions were provided to non-conventional energy devices.

In general, it is observed that the supply of other components and parts and the supply of services of erection, installation, and commissioning of the solar power plant are ‘composite’ as they are naturally bundled and accordingly, the tax rate applicable to the dominant nature of supply will prevail.

Contradicting to the Karnataka AAAR ruling, the Maharashtra AAAR in the case of Fermi solar farms and Giriraj Renewables held that the supply of solar power generating system consists of composite work contract in turn liable to an 18% tax in sync with general belief.

The solar industry is also in a state of confusion and is charging 18% and 5% differently as per their understanding and hence a clear notification from the government might be of great help to the industry and developers.

In a bidding which took place on 19th September 2017 for a 500 MW solar plant of Gujarat Urja Vikas Nigam Ltd. (GUVNL), the lowest price determined was Rs 2.65 per unit. This was slightly higher than the price of Rs 2.44 determined in the last reverse bidding by SECI. This increase in the price determined was attributed to the implementation of GST and the increase in the cost of solar panels being imported from China.

A continuous decreasing trend has been seen in the tariff determined for solar projects in the Country this year. The following graph determines the trend in prices of solar power determined in the past:

The government of India assigns dedicated funds which is linked to specific cess. This kind of cess One such fund is the National Clean Energy and Environment Fund. In a recent move, there was a diversion of the funds collected as tax for the National Clean Energy and Environment Fund to the states that lost revenue because of GST. Through this move, the unspent funds which were to be used by MNRE have been diverted. This means that from next year, India will not have a National Clean Energy and Environment Fund. Some individuals working in the sustainability sector argued that this amount could have been used in the development of clean coal technologies.

This action is also going to pose a risk to the MNRE as 98% of its budget of which comes from this fund. Not only that, this fund has also aided India in meeting its commitment towards the Paris Agreement. Now that the United States has withdrawn from the Paris Agreement, the Clean Energy fund was the only aid which India had to meet its obligations by 2020. Since it does not exist anymore, out fight to protect the environment has become an even bigger challenge.